Catalyzing support for impact investing

April 22, 2013

By Mitchell L. Strauss, Special Advisor, Socially Responsible Finance

Throughout our 40+ year history as the U.S. government’s development finance institution, OPIC has been transforming private capital into solutions for social and environmental challenges around the world, while also generating a financial return, allowing us to make our own contributions to the impact investing sector.

But in the last five years, especially since the Rockefeller Foundation began convening groups of investors about the needs of an emerging impact investing sector, the concept has been growing rapidly. A mosaic of support from groups such as the Global Impact Investing Network (GIIN), Aspen Network of Development Entrepreneurs (ANDE), and Global Impact Investing Rating System (GIIRS) has carried the movement forward. And additional players — enlightened leaders from Silicon Valley, New York, London and Asia, institutions, private equity and hedge funds — are recognizing the opportunity to do well by doing good. They are increasingly making a difference in the world by investing in profitable systems to feed more people, educate more children, create jobs in poor villages, or build sustainable communities or infrastructure.

Anthony Bugg Levine, an impact investing pioneer, once said that, “Impact investors working alone could not be effective, nor could philanthropy or government. When you put all three together in a complete capital approach, we actually believe we can bend the arc of the sustainability of these organizations providing essential services in our poor communities.”

At OPIC his words ring true. By catalyzing support for impact investing through financing and insurance, we can help companies look for ways to improve supply chains and reach the billions of people at the bottom of the pyramid as customers. International financial institutions will work together to support impact sector financing vehicles to make financing available for the missing middle, between the commercial banks and microfinance. Philanthropy, which often sustains a cause at the beginning, can help in identifying the needs, or potential areas of impact investing.

Government, philanthropy and private sector investors can and should work in concert in three ways to push impact investing to the next level. Here’s how:

1. Identify the best early endeavors and then work with them through development, expansion and scale.

2. Create pooled funding vehicles that can accept different types of capital. Harnessing a larger number of entities and individuals into the supply side of capital for investment, in addition to funding from IFIs (International Finance Institutions), is necessary.

3. Establish specialized financing vehicles to deploy capital with proven managers. Investing has the potential to have a much greater impact than aid dollars can. The key is to develop investment pools with qualified managers who see the opportunity in all of these sectors and are willing to engage businesses at all levels of the pyramid. We will find sustainable solutions when the international community assists local banks, small and large investors, and businesses to create jobs fueled by domestic and international capital. This can go much further than non-sustainable aid funding in raising people up and decreasing conflict.

We believe that now is an opportune time to consider participating in the impact investing sector. Over the past five years, OPIC has been building our own impact investment portfolio with $2.4 billion committed to projects that are addressing some of the world’s toughest problems such as access to education, finance, housing, water and sanitation, and health care, as well as climate change.

OPIC is continuing to innovate with new products and services to support impact investing, which we will explain in further detail in future posts. Until then, you can see some of our impact investing projects here.